Daily Financial News Analysis – 21st Feb’20

Table of Contents

Inflation & MPC

Reserve Bank of India’s monetary policy committee (MPC).
The distress is visible in the minutes of the last meeting, which shows that the six-member team was torn between concerns over growth and its fear of inflation.
Headline retail inflation rose to 7.35% in December, far higher than what RBI had anticipated in previous policy statements.
In fact, the central bank had to raise its inflation forecast, and now expects the headline number to touch 6.5% in the current quarter.
On growth though, members were clear that the economy needs both monetary and fiscal stimulus.
Long-standing hawk Chetan Ghate took comfort from the fact that inflation expectations were lower and that softer core inflation could give RBI room to cut rates.
Member Ravindra Dholakia was, however, disappointed that the Union budget was not expansionary enough to support growth.
Given that growth is down to 5%, MPC is willing to use whatever space is available for stimulus.

Sales of passenger vehicles

Retail sales of passenger vehicles fell 4.61% year-on-year in January to 290,879 units, showed data issued by the Federation of Automobile Dealers Associations (Fada) on Thursday.
The decline in retail sales in January, which comes on a low year-earlier base, reflects persistent unease in consumer sentiment and sluggish economic growth.
Showroom sales for two-wheelers and commercial vehicles also declined, indicating that the demand slump in the automobile sector is far from over.
For the second consecutive month, the industry had witnessed a decline in showroom sales, after a marginal recovery in October and November, when automakers offered record discounts to woo customers during the festive season.
Most manufacturers posted a drop in wholesales, or factory dispatches, in January despite controlling their inventory of Bharat Stage-IV (BS-VI) inventory, as they prepared for a gradual increase in dispatches of BS-VI compliant vehicles in the run-up to the 1 April 2020 deadline.
According to data released by the Society of Indian Automobiles Manufacturers (Siam), wholesales of passenger vehicles fell 6.2% year-on-year in January to 262,714 units.

5G Trials

The Department of Telecommunications (DoT) is planning to start 5G field trials in a month, having conducted a meeting with telcos and their gear vendor partners on Thursday to discuss use cases and their preparedness.
The DoT will now consult the wireless planning and coordination (WPC) wing of the communications ministry to discuss spectrum allocation, a person familiar with the matter said.
Use cases in domains like healthcare, education, agriculture, surveillance were proposed.
The telecom department, after the WPC approval, will allocate the trial spectrum to its licensees, telecom service providers, which can then choose to partner with vendors such as Nokia, Huawei, Ericsson, ZTE and Samsung.

India-EU

India has asked the European Union to reduce non-tariff barriers such as maximum residue level (MRL) limits on food products as they have impacted exports of rice, peanuts, chillies and spices, tea, grapes, vegetables and sea food.
India exported merchandise worth $40.7 billion to the EU in the nine months to December 2019 while it imported $38.2 billion worth of goods from the trading bloc.
Allaying the EU’s fears on Indian tea having a chemical that is used in manufacture of dyes, New Delhi said it is an unfounded misperception as the Indian tea sector uses no anthraquinone.
India also flagged its concern on the EU impounding, delaying or confiscating traditional and generic medicines for use in Africa and Latin America that transit through EU ports.
Besides harming Indian exporters, such actions deprive the poor in various countries of access to these generic medicines, which have had a major role in fighting the scourge of diseases and infections, including HIV/AIDS, in Africa.
Ahead of the WTO ministerial meeting in Nur Sultan (Kazakhstan) in June, India reiterated its demand that EU and other developed countries reduce their trade-distorting farm subsidies called the Aggregate Measurement of Support (AMS).

National survey to estimate poverty

In a major exercise to estimate poverty, a nation-wide survey has been launched to capture household accessibility to amenities including nutrition, drinking water, housing and cooking fuel.
The exercise is likely to help India arrive at poverty levels, years after the poverty line idea was dumped.
The number of poor as well as poverty levels are crucial for any government to prioritise social sector schemes.
In 2014, the NDA government had junked the C Rangarajan committee report on poverty as it had pegged 100 million more poor vis-à-vis the last estimate based on the Tendulkar committee report.
Ministry of Statistics and Programme Implementation (MoSPI) is conducting the field work, while NITI Aayog is monitoring the performance of the country and states.
The results will feed into UNDP’s Multidimensional Poverty Index (MPI) that ranks countries on the basis of health, education and living standards.
A meeting was held in NITI Aayog recently between Aayog and MoSPI officials to finalise methodology to assess poverty.
Based on the findings, the Aayog will develop a poverty index that will rank states and union territories.
The idea is to enable states to compete amongst themselves to bring more people out of poverty, which in turn will improve India’s UN Poverty Index rank.
As per global standards, multidimensional poverty is defined not simply by income, but via indicators like poor health, poor quality of work and the threat of violence.
The UNDP Multidimensional Poverty Index (MPI) tracks deprivation across three dimensions and 10 indicators, namely health (child mortality, nutrition), education (years of schooling, enrollment) and living standards (water, sanitation, electricity, cooking fuel, floor, assets).

India-USA 5 pacts

India and the US are likely to finalize five pacts, including on trade facilitation, homeland security and intellectual property rights, after talks between US President Donald Trump and Prime Minister Narendra Modi next week.
Indian foreign ministry spokesman Raveesh Kumar: discussions slated to span the gamut of bilateral, regional and global issues such as trade, strategic topics, counterterrorism and the Indo-Pacific region.
Kumar did not give details of the five pacts but said they were expected to shore up cooperation in counterterrorism and intelligence gathering, as well as remove irritants in commercial relations.
India tightening the intellectual property rights regime would be a step towards addressing US concerns on a matter pending between the two countries for decades, according to officials.
India was among 10 countries placed on a Priority Watch List by the US Trade Representative’s office for IP violations in April 2019, according to news reports.
Another pact expected to be signed is the $2.6 billion deal for 24 Seahawk helicopters for the Indian Navy.
Trump’s visit next week is the first ever stand-alone trip by a US president to India.
Modi and Trump have had eight meetings so far since the US president assumed office in January 2017.
Five of these have happened over the past eight months.
Both Modi and Trump “have personally invested in this relationship”, according to Kumar.
Over the years, “the canvas of our relationship has expanded to include several new areas”, he added.

With regard to civil nuclear energy cooperation, Westinghouse, now owned by Canada’s Brookfield Business Partners, and India’s Nuclear Power Corporation of India Limited (NPCIL) are engaged in talks to build six 1,100MW reactors at Kovvada in Andhra Pradesh, said the external affairs ministry spokesman.
India and the US in 2008 signed a civil nuclear liability pact that ended more than three decades of embargos on India.
Civil nuclear cooperation hasn’t, however, taken off given concerns arising from India’s stringent 2010 civil nuclear liability law, the Fukushima nuclear reactor accident in 2011 and companies such as Westinghouse filing for bankruptcy.
Space has also been an area of cooperation with Indian and US research agencies building a microwave remote-sensing satellite with dual frequency synthetic aperture radar.
Kumar said the two sides had been engaged in discussions on a limited trade pact for some months.“We hope to reach an understanding with an outcome that strikes the right balance for both sides. We do not want to rush into a deal as the issues involved are complicated with many decisions potentially having a real impact on people’s lives and long-term economic consequences. We do not want to create artificial deadlines.”